Blockchain oracles serve as a bridge between the blockchain and the external world, enabling smart futures to access off-chain data. Oracles are third-party service tools used to fetch and verify external information and transmit it to smart futures running on the blockchain. They extend the functionality of smart futures by providing a mechanism for interacting with off-chain data to perform valuable tasks and services. Without oracles, smart futures would be confined to the world of on-chain data, unable to access external information.
1. Types of Oracles
There are various types of blockchain oracles in the market, each serving different purposes. Oracles can be classified based on the type of data source (hardware or software), information transmission direction (inbound or outbound), and trust model (centralized or decentralized). Each type of oracle has unique functionalities and advantages.
Software Oracles
Software oracles typically involve easily accessible online information sources, such as websites and public databases. They provide information like temperature readings, public transportation details, and current prices of various financial assets. Software oracles might be the most powerful type, given their inherent connectivity to the internet, allowing them to provide the latest information for smart futures.
Hardware Oracles
Hardware oracles are responsible for events occurring in the physical world and transmitting data to smart futures. For example, in supply chain management, if an object with an RFID tag is about to reach a specific warehouse, this data can be sent to smart futures, and the hardware oracle system can track the goods throughout the supply chain.
Inbound Oracles
Inbound oracles have the function of simply providing data to smart futures. The provided data exists externally to the smart futures and begins execution upon receiving the information. In the example above, a news website providing Bitcoin prices can be classified as an inbound oracle.
Outbound Oracles
These oracles transmit smart futures data to external sources. In the example mentioned earlier, once John is confirmed as the winner, smart futures can convey this information to the wallet provider for an automatic balance update. In this case, smart futures itself acts as an outbound oracle.
Consensus-Based Oracles
The function of these oracles is to query multiple information sources and derive results based on their consensus. For example, the example above could use four websites to query Bitcoin prices. If all oracle sources (websites) return the same value, the smart futures can execute successfully.
Human Oracles
Individuals with expertise act as data sources. They collect information, verify its legitimacy, and convert it into smart futures. Human oracles can use encryption technology to validate their identity and provide trustworthy data.
Computational Oracles
These oracles perform complex computational operations and return the results to the blockchain. Such calculations are often challenging or prohibitively costly on-chain. Computational oracles are particularly valuable in cases of network gas constraints and high computational costs.
2. Oracle Market
Oracle projects appeared as early as 2015 but gained increased attention only with the surge of Chainlink and the rise of the DeFi market. In 2022, the Total Value Locked (TVL) in DeFi peaked at around $250 billion. However, DeFi represents only a fraction of the cryptocurrency market, which is valued at trillions of dollars. Blockchain and oracle-related technologies have the potential to unlock the value in the traditional financial market, estimated at $87 trillion as of November 2023. The overall market capitalization of oracles has reached $10,570,812,883, with a trading volume of $870,961,961.
3. Oracle Ecosystem
Decentralized Oracle Network: ChainLink
ChainLink is a decentralized oracle network enabling smart futures to securely and reliably interact with off-chain data and external APIs. The ChainLink network consists of a decentralized network of independent node operators, known as oracles.
In the ChainLink network, oracles retrieve data from various sources such as APIs, traditional databases, and IoT devices. These data sources undergo verification and aggregation by a set of decentralized independent node operators, ensuring the reliability and accuracy of the data. Each data source has an on-chain address and functions, allowing smart futures to read data from that address.
ChainLink has been widely adopted in various industries, including decentralized finance (DeFi), gaming, insurance, supply chain management, etc., enabling smart futures to securely access real-world data and expanding the use cases and functionalities of blockchain applications.
Cross-Chain Oracle: Band Protocol
Band Protocol is a blockchain-based decentralized oracle solution designed to provide reliable, secure, and accurate external data sources for decentralized applications. It leverages multiple data providers (Data Providers) and an incentive mechanism to fetch, aggregate, and verify data, making it available to smart futures during their execution. This capability allows smart futures to utilize real-time and accurate external data in their execution processes.
BandChain serves as the high-performance blockchain of Band Protocol, offering cross-chain data oracle services. It enables smart futures on any blockchain to securely access off-chain data. Built on the Cosmos SDK and utilizing Tendermint's Byzantine fault-tolerant consensus algorithm, BandChain achieves instant finality results.
Through its Inter-Blockchain Communication (IBC) bridge functionality, BandChain provides cross-chain data oracle services for smart futures on blockchain. This feature allows the oracle results from the BandChain blockchain to be sent to other blockchains via the IBC protocol or custom one-way bridges with minimal latency.
Band Protocol also offers a range of pre-built oracle scripts that can be used to create custom oracles for any type of data. Developers can further utilize programmable oracle script functionality to create custom oracle scripts using any programming language.
Additionally, another significant product is the Band Standard Dataset, comprising pre-built datasets for various types of data, including financial data, sports data, weather data, etc. Developers can use these datasets to create custom oracles for their smart futures without manually collecting and verifying data.
Peer-to-Peer Protocol: Augur
The Augur protocol is a decentralized oracle and peer-to-peer protocol designed to create a transparent and reliable platform where users can create and participate in prediction markets on various topics, including sports, politics, finance, etc.
Augur is free, public, open-source software, partly licensed under the GNU General Public License (GPL) and partly under the Massachusetts Institute of Technology (MIT) License. Augur consists of a set of smart futures written in Solidity that can be deployed on the Ethereum blockchain.
The Augur protocol attempts to address one of the most challenging problems in blockchain technology, especially in the smart futures space, which is the oracle problem. Augur oracles allow information to migrate from the real world to the blockchain without relying on trusted intermediaries or third parties, making it freely usable by anyone in any manner.
Decentralized Finance Protocol: UMA
UMA (Universal Market Access) is an optimistic oracle and dispute resolution system that can safely introduce arbitrary types of data into blockchain. UMA's Oracle system provides fast and secure data verification for various projects, including cross-chain bridging, insurance protocols, custom derivatives, and prediction markets.
The Optimistic Oracle allows futures to quickly request and receive data information, acting as an upgrade game mechanism between the futures initiating price requests and UMA's dispute resolution system (referred to as the data verification mechanism). Unless there is a dispute, prices proposed by the Optimistic Oracle will not be sent to the data verification mechanism.
In case of a dispute, a request will be sent to the data verification mechanism. All futures built on UMA use the data verification mechanism as a last resort to resolve disputes. Disputes sent to the data verification mechanism will be resolved within a few days—UMA token holders vote for the correct result.
Next-Generation Oracle: Pyth Network
Pyth Network is a blockchain oracle providing financial market data. It aims to deliver low-latency, high-frequency data updates for various on-chain financial applications. Pyth Network includes over 90 first-hand data providers, including major exchanges and top market makers, supplying data to Pyth. By focusing on first-hand data providers, Pyth ensures the accuracy and reliability of data, enhancing on-chain data transparency.
Data consumers in the Pyth Network request price updates as needed, using a "pull oracle" model. This avoids unnecessary updates, saves gas fees, and allows adjustments based on the needs of decentralized applications. Pyth Network publishers require dedicated infrastructure to maintain high-frequency updates (comparable to Solana update speeds). Pyth Network publishers initiate about 100 million Solana transactions per day, generating approximately 10 million price updates daily (20,000 updates per asset).
As the DeFi ecosystem continues to evolve, the role of oracles in providing trusted and real-time data becomes increasingly crucial for ensuring the security and stability of these blockchain networks and expanding the entire industry.
For more analysis, please follow Aibit's media account for real-time updates! This article is for reference only, does not represent any position, and is not intended as investment advice. Investment is risky, caution should be exercised.
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